Qantas Airways Ltd is taking extreme measures to cut its planes’ weight and pack in more paying travellers as chief executive officer Alan Joyce works to return the carrier to profit.
The airline’s leaving behind life rafts for overland flights, draining any extra water from tanks and replacing bulky entertainment systems with iPads to save on fuel. It’s even washing with hotter water to cut more grime, helping reduce drag, as it packs more passengers into economy class.
Faced with competition from the likes of Singapore Airlines Ltd and Virgin Australia Holdings Ltd, Qantas is following the path of other carriers in squeezing every possible dollar from its planes. Former American Airlines Inc. chief Bob Crandall used to boast about how removing a single olive from passengers’ meals saved the airline $40,000 in fuel. GoAirlines India Pvt. said last year it would in future recruit only female flight attendants to save as much as 44 pounds per cabin crew.
“Little changes add up to millions of dollars,” said Gareth Evans, chief financial officer of Qantas, which had sales of A$14 billion in the year ended June and a net loss of A$2.8 billion. “Medium-sized changes add up to tens and possibly even hundreds of millions of dollars.”
While airline earnings are forecast to hit a record this year on surging US sales, thin margins leave carriers vulnerable to economic setbacks, according to the International Air Transport Association. Carriers worldwide will post a net income of 2.4 per cent of projected sales in 2014, or $5.42 per passenger, IATA Chief Executive Officer Tony Tyler said in June.
That makes innovation key to boosting earnings. In business class, Joyce is introducing lie-flat seats that let high-paying passengers bed down during take-off and landing. In economy, he’s squeezing in more seats to maximize ticket sales.
Over the past two years, Joyce has cut first class from most of Qantas’s Boeing Co. 747s to add 52 seats; shrunk business class on its Airbus Group NV A380s to carry 34 more people; and swapped 737-400 jets for stretched 737-800s with four extra rows on domestic routes.
The 737-800s have an inch less legroom in economy class, according to travel site Seatguru.com, and will see their galleys and toilets slimmed down to cram one more row into coach from June.
While Qantas’s domestic and international carriers gave up a 10th of their aircraft in the two years that ended in June, passenger numbers fell only 3 per cent, according to Bloomberg News calculations based on company filings.
Cost savings helped the company bounce back from a A$646 million loss before tax and one-time items last year and return to an underlying profit in the first quarter, chairman Leigh Clifford told Qantas’s annual shareholder meeting in Melbourne. Qantas plans to lower annual expenses by A$2 billion and cut 5,000 jobs by 2017.
“Earnings recovery will be driven by cost reduction in the short term,” he said. “Productivity has increased dramatically.”
Many of the airline’s moves center on weight, with an eye toward reducing A$4.5 billion fuel bill.
Qantas announced plans to remove heavy rubber rafts from 38 planes that fly domestic routes and don’t pass over water. A330s used on the 90-minute route between Sydney and Melbourne only have drinking-water tanks filled halfway, Evans said in a phone interview. On routes to rural towns, Boeing 717s have iPads instead of built-in, seat-back entertainment systems, a tactic used by Singapore Airlines’ Scoot to save about two tons per plane.
“I haven’t noticed the difference,” said Nick la Galle, a Melbourne-based technology developer who runs a frequent-flier blog. “There’s a lot of practices they’re trying to streamline in the background that we as passengers don’t see.”
Qantas cut non-fuel expenses by 4 per cent on international flights and 3 per cent on domestic flights during the 12 months that ended in June, the company said. Qantas International planes will be airborne about 12 per cent longer each day, Joyce told shareholders last month.
The carrier is still far from its fighting weight. After taxes and one-time items, it’s projected to post A$45.4 million of losses in the current fiscal year, according to the average of 10 analysts’ estimates compiled by Bloomberg.
While yields - a measure of sales per seat, per kilometer - are rising, they’re recovering from a 17-year low last year. An about 19 per cent decline in jet fuel prices this year has just begun to pare the past decade’s more than 70 per cent jump.
The carrier still must keep an eye on costs, said Tony Webber, a former Qantas chief economist and managing director of Sydney-based Webber Quantitative Consulting.
“When you aggregate over all the flights an airline makes and the small margins in the sector, all the savings add up,” he said. “Small changes can make a hell of a difference.”
Bloomberg News, edited by Hospitality Ireland